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E-Mini Nasdaq Futures Volatility Forecast (04/07/2011)

Our last week forecast proved to be one of the most profitable we have ever made. We were expecting the market to rally and we set our profit target at 2,260 but E-Mini Nasdaq futures passed our threshold in the second day of the week turning our bullish projection in a solid winning trade.

E-Mini Nasdaq futures opened at 2,250, rallied to 2,284 on Tuesday, rose to 2,294 and kept heading north until the end of the week because 2,319 and 2,354 have been the last price prints registered on Thursday and Friday respectively.

The current volatility is 1.13% (17.9% annualised) and the TGARCH plot is now displaying a downward sloping curve which is going to end its mean reverting process, most probably, around the 0.6% – 0.7% area (9.5% – 11.1% in annual terms). Consequently, the sharp rise in futures prices has to be considered fairly robust; hence, the next trading hours should see a flattening of price oscillation.

The HyperVolatility team remains sceptic about the reliability of such a price increase for one simple reason: it was too fast. Therefore, the volatility will keep dropping because a sideways movement of the market is likely going to trap the price action around 2,350 points. Also, the positive correlation between the rise in the conditional variance and volatility (although the last one plummeted at the end) is a warning signal that should not be ignored.

Nevertheless, a short term retracement of the price should be quite likely to happen, particularly in the second half of the week, whilst E-Mini Nasdaq futures should retest the 2,345 – 2,350 area.

VXN Index Volatility Forecast (04/07/2011)

The last week we were expecting a bearish move of the VXN Index and the HyperVolatility team was right once again. In fact, the Nasdaq implied volatility Index opened at 21.9 dropped to 20.7 on Tuesday, settled at 18.8 on Wednesday, decreased to 17.8 on Thursday and closed at 17.3 on Friday.

The actual volatility is 6% (20.7% monthly) and the chart is showing a volatility curve which is right in the middle of a mean reverting process which is going to bring back the volatility of the VXN Index back into its balance level which is identifiable around the 4% zone (13.8% monthly).

It is reasonable to believe that the flattening in volatility could continue over the next hours but once achieved the long term equilibrium point, which is set around the 4% – 4.5% level (13.8% -15.5% monthly) there could be some very short term volatility explosion whose intensity and magnitude should not be high.

The HyperVolatility team remains bearish the VXN Index because the positive correlation between the stochastic volatility of the Index itself and its fluctuations seems highlighting the continuation of the mean reverting process. On the other hand, the drop should not be very consistent and it is unlikely that the VXN will end up below the 13% – 14.5% threshold and that is precisely why the short term oscillation of the conditional variance should maintain the implied volatility Index around this level.

E-Mini Nasdaq Futures Volatility Forecast (27/06/2011)

The market opened at 2,199 rose to 2,243 on Tuesday, dropped back to 2,229 on Wednesday, topped at 2,238 on Thursday and finally closed at 2,208 on Friday. The last week we were bullish E-Mini Nasdaq futures (2,255 was our profit target) and our forecast was very accurate but, once again, the great uncertainty which dominated most of the equity markets managed to scare away many investors who decided to get rid of their long positions.

The current volatility is 1.3% (20.6% annualised) and the chart is visibly displaying a curve which is still trading very far from the equilibrium point (confront this chart with the previous week one). The actual situation is not sustainable in the long run and it is very probable that the conditional variance will start its mean reverting process towards the 0.42% level in the upcoming hours.

The volatility was supposed to commence the mean reverting movement the last week but the announcements of bad macroeconomics news managed to keep the panic up and consequently the variance.

The HyperVolatility team remains bullish E-Mini Nasdaq futures because the distortive effect of news on market price should now be over and the conditional variance should now start to complete its expected movement towards the status quo. Consequently, the drop of market volatility is going to favour a recovery of the price which should retest the 2,260 area by Friday.

VXN Index Volatility Forecast (27/06/2011)

The bearish view we had the last week was confirmed by the sharp drop of volatility over 4 days although the up move occurred on Friday transformed an almost perfect bear week in a sideways one. In particular, the market opened at 22.07 dropped to 20.2 on Wednesday, moved to 20.7 on Thursday and jumped to 22.5 on Friday.

The actual volatility is 7.9% (27.3% monthly) and the TGARCH plot is clearly displaying a downward sloping curve which seems to suggest that the upcoming days will see a softening of the volatility and therefore a reduced percentage of market swings.

However, it is worth pointing out that the VXN Index was nicely collapsing, as we correctly forecasted the last week, but the great changes which affected the crude oil market twisted the “natural” fluctuations of equity indices and this caused the augment of the conditional variance.

The HyperVolatility team is still bearish the VXN Index because the volatility of the Index, which is positively correlated to the price, is clearly dropping and such a phenomenon is going to drag down the price which should touch 18.5% – 19% by Friday.

We will monitor the market quite closely because some unexpected macroeconomics news could bring some unwanted surprise but at least this week there should not be ground-breaking news.

E-Mini Nasdaq Futures Volatility Forecast (21/06/2011)

The last week we were bullish E-Mini Nasdaq but an unexpected volatility explosion pushed the Index in the opposite direction. In fact, the market opened at 2.223, topped at 2.251 on Tuesday, dropped to 2.209 on Wednesday and kept decreasing until the end of the week because 2.199 and 2.190 have been the last price prints on Thursday and Friday respectively.

The current volatility is 1.4% (22.2% annualised) but the TGARCH curve has now touched its highest points in 5 months and it is reasonable to believe that it will start a mean reverting process that will push it back towards its equilibrium point: 0.6% (9.5% in annual terms).

The decrease in volatility should be quite slow at the beginning but fairly violent as the conditional variance approaches its balance level and such a phenomenon could bring some slow but constant increase in futures prices followed by a violent and unexpected buying pressure which are obviously going to favour a recovery of the price.

Moreover, the fact that the volatility curve is not that steep anymore implies that the selling pressure has run out of steam and that bulls are going to be in charge of market directions.

The HyperVolatility team is bullish E-Mini Nasdaq futures because we believe that the market will rally quite sharply over the next hours and eventually achieve 2,255 – 2.260 by Friday.

VXN Index Volatility Forecast (21/06/2011)

The Nasdaq implied volatility index rose consistently the last week, although we were expecting a quite week. The VXN opened at 20.2%, touched 22.2% on Wednesday, arrived to 24.4% on Thursday and settled at 23.5% on Friday.

The volatility is now almost 10% (34.6% monthly) and the TGARCH plot is showing a curve which is clearly high and most probably about to mean revert and collapse towards the long term equilibrium value; that is 4% (13.8% monthly).

The sharp increase in the conditional variance has been due to the quick drop occurred in the underlying market but the actual level of the volatility is probably unsustainable even in the short term and that is why we believe that the oscillation rate of the VXN Index will diminish soon.

The HyperVolatility team is bearish the VXN Index because the volatility of the Nasdaq options market is likely to touch 5.5% – 6% (19% – 20.7% monthly) whilst the actual index should retest the 19% – 20% area by Friday.

E-Mini Nasdaq Futures Volatility Forecast (13/06/2011)

We were bearish E-Mini Nasdaq futures and we forecasted an end-of-week price around the 2,235 – 2,240: our analysis proved accurate once again. Particularly, futures prices opened at 2,274 plummeted to 2,248 on Wednesday, rose to 2,252 on Thursday and closed at 2,222 on Friday.

The actual volatility is 1.4% (22.2% annualised) and the TGARCH curve is undoubtedly extremely high but it appears that the conditional variance is now tending to mean revert and collapse even though the decreasing progression could be quite slow at the beginning.

Furthermore, the variance will tend to settle around the 0.58% – 0.65% area (9.2% – 10.3% annualised) and E-Mini Nasdaq futures will be probably head north because the low market fluctuations rate will favour their recovery.

It is worth reminding that the Nasdaq Index has been influenced, like all other equity indices, by the negative macroeconomics news that hit the market almost 10 days ago and even if this market is very volatile the current readings are unsustainable.

The HyperVolatility team is moderately bullish on E-Mini Nasdaq futures because the slow but constant mean reverting process is going to back the price action which could eventually achieve 2,270 – 2,285 points by Friday.

VXN Index Volatility Forecast (13/06/2011)

The bullish forecast we gave you the last week proved to be very good and precise because the VXN opened at 19.5% (which was our initial target) it touched 19.9% on Wednesday, it plunged to 19.1% on Thursday and closed at 19.5% on Friday.

The volatility of the VXN Index at first rose and achieved 9% (31.1% monthly) but in the very last part of the week it suddenly began to drop and mean revert toward the equilibrium point which is still stable around the 4% area (13.8% monthly).

The fact that the implied volatility Index of the Nasdaq decreased although most of the equity indices were plummeting is clearly a warning signal which highlights the fact that many investors did not get rid of their long positions and did not alter the composition of their portfolios.

The HyperVolatility team is bearish on the VXN Index because the mean reverting process of the conditional variance should drag the Index down back into the 18% – 18.5% area by Friday, news permitting.

E-Mini Nasdaq Futures Volatility Forecast (06/06/2011)

The last week we were bullish E-Mini Nasdaq futures and our forecast proved right solely in the first 2 days of the week because once the Index achieved the top on Tuesday it started to decline. Specifically, the market opened at 2,333 rose to 2,375 it then plummeted to 2,321 on Wednesday whilst on Thursday it settled around 2,326 but it heavily plunged to 2,287 on Friday.

The current volatility is 1.4% (22.2% annualised) and the TGARCH curve is now displaying a slightly upward sloping curve which seems to be a warning against an augment of market fluctuations over the next trading days.

The uncertainty and fear which influenced equity markets clearly had a remarkable impact on the Nasdaq and the unsatisfactory unemployment figures, contained in a overall negative Non Farm Payrolls, are probably going to keep the hi-tech Index in a non-positive status.

The HyperVolatility team remains bearish on E-Mini Nasdaq futures because the volatility curve did not provide any recovery signal and the mean reverting process does not seem to be started yet.

We will try to place some short positions as soon as possible but we will wait for the volatility to provide us with a statistically reliable entry point. Overall, we think that futures prices should touch 2,235 -2,240 points before the next weekend.

However, a sideways movement of the price action could easily drag the conditional variance down but such a drop should not be interpreted as a price recovery: rough waters ahead!!!

VXN Index Volatility Forecast (06/06/2011)

The last week we were bearish the VXN Index but the great deal of uncertainty, the light volume, the bank holiday and the massive amount of macroeconomics news that have been released lifted the implied volatility of the Nasdaq Index. In fact, the VXN opened at 16.4% rose to 18.7% on Thursday and closed at 18.9% on Friday.

The current volatility is 8% (27.7% monthly) and the TGARCH plot is displaying a steep increase of the conditional variance which is followed by a shy drop. However, the plummet that is barely visible at the right hand part of the volatility chart has been mainly caused by the lateral movement of the oscillation rate occurred during the last 2 days of the week.

Consequently, the reduced amount of market fluctuations cannot be interpreted as a sign of market recovery, although in the medium term the curve will inevitably tend to mean revert towards 4% (13.8% monthly).

The HyperVolatility team remains fairly sceptic about a steady decrease of the oscillation rate in the upcoming days because the disappointing unemployment figures and the renewed concerns for the slow growth rate of the global economy will probably tend to increase the volatility.

Consequently, we are bullish the VXN Index and we expect it to achieve the 19.5% threshold by the next Friday.

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